On April 19th, you might be forced to take a 5 year fixed rate mortgage….
There has been a lot of media talk about the new Mortgage Rules…. On April 19th, the rules for Borrower’s with less than 20% down payment will come into effect…. But let’s clarify…
There was an article in the Vancouver Sun last week that talked about an internal document that was distributed by CMHC to Mortgage Brokers… Here is a quote from that internal document:
“Clarification on Qualifying Interest Rate
Effective April 19, 2010, the qualifying interest rate used to assess borrower eligibility will change only for loans with a loan to value ratio (LTV) greater than 80% as follows:
Fixed Rate Mortgages and Variable Rate Mortgages: For loans with a fixed rate term of less than 5 years and for all variable rate mortgages, regardless of the term, the qualifying interest rate is the greater of the benchmark rate1, and the contract interest rate. For loans with a fixed rate term of 5 years or more, the qualifying interest rate is the contract interest rate.
Mortgages with Multiple Interest Rates (e.g. Multi-Component Mortgages): Each component must be qualified using the applicable criteria defined above.
1CMHC defines the benchmark rate as the Chartered Bank – Conventional Mortgage 5-year rate that is the most recent interest rate published by the Bank of Canada in the series V121764 as of 12:01 AM (Eastern Time) each Monday, and which can be found at: http://www.bankofcanada.ca/en/rates/interest-look.html“
Did anyone pick up on that….? Today’s best 5 year fixed rate is around 4.29%… If you take a 5 year fixed rate, then your mortgage is qualified using that rate… no problem… BUT, if you take a shorter term or a variable rate product, then you must qualify using the BANK POSTED rate which is 5.85% today.
Put another way, a $300,000 mortgage with a 25 year amortization requires an annual income of $74,000 if you selected a 5 year fixed rate or longer term….BUT what if you wanted shorter term or the popular Variable Rate product which is currently 1.75%? …then you would need to qualify with the BANK POSTED rate of 5.85% and that would require a household income of $84,000…..
I don’t know about you, but Variable Rate mortgages are still very attractive…it’s too bad many of us won’t be able to make that choice when we buy our next home…
Genworth Financial is kicking off the traditional Spring housing market with a week of Online seminars… Each day has a different theme….The goal is to educate prospective homebuyers and borrowers so they can make informed decisions….
The website is Homeownershiphelp.ca and here’s the schedule of events…
|WEDNESDAY APRIL 14
||Test Your Knowledge
||Tips on Purchasing and Owning a Home
|Learn the importance of good credit and how your credit history is established
||Find out how to reconcile what you want with what you can afford
||Understand the steps of home purchasing in Canada
||Take the Homebuyer 101 course
||Find out the fast facts that will help make your dream home a reality
Canadian $ at par with the U.S. $
Today, the Canadian $ hit 100.12 cents briefly this morning…. A clear signal that the rest of the world is viewing Canada as having a very stable and solid economy…. Here’s an article with forecasts of the dollar remaining at these levels into next year….
But if the Canadian $ remains at these high levels, it puts pressure on the Bank of Canada not to raise the Bank rate as high or as quickly…. Any increase in the Bank rate will drive the Canadian $ higher…
5 Year Bond yields over 3.00%
The 5 year Canadian Bond yields jumped to over 3.00% for the first time since October 2008… That’s the same time the U.S. Sub-Prime mortgage crisis hit and the world fell into a recession. Bond yields affect fixed rates…..current 5 year fixed rates are hovering between 4.19% and 4.39%… today’s Banks and Mortgage Lenders are looking for a 1.20% to 1.30% spread and we are that level… Further increases in the Bond yield will cause fixed rates to go up….
I’ve debated whether I should share some of these incredible nightmares with you….but there are just so many of these coming up that I had to report them….If you have a similar story, please send me a note so that I might review and share and maybe even try to help.
Bank Horror Story 1
Last year, I had the pleasure of helping out a young family….. They have 5 kids and were in the wrong mortgage product with a short amortization and the bank had recently given them a consolidation loan to help out… The banker did not do this family any favours…
Their monthly payments were still totaling around $2900/mth….A simple review would have revealed that this family had plenty of equity in their home to leverage…. After all, the cheapest money is mortgage money.
I recommended they roll that loan into the mortgage, break the current mortgage, extend the amortization and the end result would be a much lower and manageable payment with a lower overall interest rate….3.75% vs 4.94% and their monthly payment would be $1600/mth...saving them over $1300/mth.
The bank quoted a $5k penalty.. that’s ok… it was still well worth it… the interest savings would be around $13k over 5 years… but then they charged him over $10k in penalties at closing... well, with the help of Ellen Roseman of the The Star newspaper, he got his $5k back…..
Bank Horror Story 2
Here’s another story with a happy ending that just occurred this year… A single mother with disabled son needed to get their payments lower and pull out some money for a new roof….Her mortgage was coming up for renewal so no concerns with penalties, right? WRONG!!
This Bank ( a Big Six bank) decided to renew the mortgage into a closed 6 month term…even though they had been informed by the client that she was paying them out… and informed by her lawyer that they were paying them out…. WHY? I have no idea….but they ended up charging and collecting a penalty for $1600…
Once again, with the help of Ellen Roseman from The Star, the bank refunded the entire $1600 to that client some 3 months later…. The worst part about this story is that the Branch Manager refused to return any calls to the client or her lawyer….. Quite Pathetic.
The Big Banks are reporting $Billion quarterly profits
Have you read some of the financial reports from the Big Banks? Do you know where they are making most of their money? From Domestic Banking… The above stories are just 2 examples where clients are being gouged and ripped off….how many more of these situations exist?
We received an update from the Independent Mortgage Brokers Association informing us that they are still unclear about the effects of HST on the housing and mortgage market….. that it was still somewhat confusing…so they have engaged a consultant to get some answers… watch for our updates on this.
I was sent this interesting link the other day…. http://www.unfairtaxgrab.com/home.html. It’s a site with the Provincial NDP leader sharing her thoughts on the impact of the HST for Ontarians…. A sobering message but one worth reading……